According to the text, cycle inventory exists because producing or purchasing in large lots allows a stage of the supply chain to exploit economies of scale and lower cost - through volume or lot sized discounts. By definition, cycle inventory is the average inventory in a supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer.

This week I want you to pick a company and discuss that companys management of cycle inventory. First of all, describe the product the company sells and the kind of inventory needed to produce this item. For example, McDonalds makes hamburgers, so what is the cycle inventory for ground beef. Look at Section 11.2 and estimate the companys ordering and holding costs. You will need to look at the companys annual report to determine the WACC. Discuss obsolescence cost, handling cost, occupancy cost, buyer time, transportation costs, receiving costs, and any other costs.

Calculate the WACC!!!

Most of these numbers can be found in a companys annual report and in any equity research report on the company. The borrowing rate comes from tables listing the rates charged for bonds from firms with the same credit ratings. The risk-free rate is the return on U.S. Treasury bonds, and the market risk premium is the return of the market above the risk-free rate. If access to a companys financial structure is not available, a good approximation can be made by using numbers from public companies in the same industry and of similar size.